Choices for Your 401(k) at a Former Employer

One of the common threads of a mobile workforce is that many individuals who leave their job are faced with a decision about what to do with their 401(k) account.¹

Individuals have three basic choices with the 401(k) account they accrued at a previous employer.

Choice 1: Leave It with Your Previous Employer

You may choose to do nothing and leave your account in your previous employer’s 401(k) plan. However, if your account balance is under a certain amount, be aware that your ex-employer may elect to distribute the funds to you.

While inertia is one of the primary reasons for not moving a 401(k), there may be reasons to keep it there—such as investments that are low cost or have limited availability outside of the plan. Other reasons are to maintain certain creditor protections that are unique to qualified retirement plans, or to retain the ability to borrow from it, if the plan allows for such loans to ex-employees.²

The primary downside is that individuals can become disconnected from the old account and pay less attention to the ongoing management of its investments.

Choice 2: Transfer to Your New Employer’s 401(k) Plan

Provided your current employer’s 401(k) accepts the transfer of assets from a pre-existing 401(k), you may want to consider moving these assets to your new plan.

The primary benefits to transferring are the convenience of consolidating your assets, retaining their strong creditor protections, and keeping them accessible via the plan’s loan feature.

Provided their new plan has a competitive investment menu, many individuals prefer to transfer their account and make a full break with their former employer.

The last choice is to roll assets over into a new or existing traditional IRA.³ A traditional IRA may provide a wider range of investment choices than what may exist in your new 401(k) plan.

The drawback to this approach may be less creditor protection and the loss of access to these funds via a 401(k) loan feature.

Remember, don’t feel rushed into making a decision. You have time to consider your choices and may want to seek professional guidance to answer any questions you may have.

Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

A 401(k) loan not paid is deemed a distribution, subject to income taxes and a 10% tax penalty if the account owner is under 59½. If the account owner switches jobs or gets laid off, any outstanding 401(k) loan balance becomes due by the time the person files his or her federal tax return. Prior to the 2017 Tax Cuts and Jobs Act, employees typically had to repay loans within 60 days of departure or face potential tax consequences.

Withdrawals from traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

Market Summary

Stephen Eldridge has more than 44 years of direct industry experience, having founded Stephen Eldridge & Company, a retirement plan administration firm, in 1972. Early in his career, following the passage of the Employee Retirement...

Craig Garner, a 26-year veteran of the firm, provides education and assistance in a number of areas, including plan document review, ERISA guidance and ongoing compliance education. Craig also conducts operational plan reviews that...

With over 20 years of experience working in asset management and employer sponsored retirement plans, Sean Riley brings an insider’s perspective to his role as a consultant and advisor for our clients. Sean joined the firm in...

Kevin Whitmore brings almost three decades of securities industry experience to his role as a financial advisor. After earning a B.A. in business and economics from St. Anselm College, Kevin began his career in the securities business...

Robert Batdorf is a senior client portfolio manager and 24-year veteran of Eldridge Investment Advisors, Inc. He brings more than 4 decades of industry leadership and experience across multiple market and economic cycles to the...

Warren joined the firm in 1989 as a Portfolio Manager and financial advisor, concentrating in mid-to-large company retirement plans and 529 education savings plans. Beginning in 2016, he will focus solely on client portfolio management...

Susan Lipsett is a research assistant and administrative assistant supporting the firms’ client portfolio managers as well as financial advisors Sean Riley and Kevin Whitmore. She collects and distributes...

Leslie Maffee oversees the daily operations of the branch office and is a LPL Registered Sales Assistant to Stephen Eldridge and Eric Putney. She has more than 30 years of experience in branch office operations (over 20 years with...

Meg Dworkin provides support for the registered assistants in addition to being a member of the retirement plan team. She has 20+ years of experience in the areas of defined contribution, defined benefit and individual taxation. Meg...

With over 16 years of experience in the investment industry, Stephen Murray provides research analysis and portfolio management. Prior to joining the firm in 2016, he was Director of Research and Portfolio Manager with Harvest Capital...

Justin Eldridge joined the firm in 2016 to assist in the areas of Sales and Research. He graduated from Trinity College with a double major in Economics and Political Science, and earned his MBA in Finance from Northeastern University....

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The content is developed from sources believed to be providing accurate information.
The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals
for specific information regarding your individual situation. Some of this material was developed and produced by
FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named
representative, broker - dealer, state - or SEC - registered investment advisory firm. The opinions expressed and
material provided are for general information, and should not be considered a solicitation for the purchase or
sale of any security.

Copyright 2019 FMG Suite.

Securities offered through LPL Financial, Member FINRA/SIPC. Advisory services under the SAM program offered through Eldridge Investment Advisors, Inc. ("EIA"), a registered investment advisor, and through LPL Financial, a registered investment advisor. Advisory services under other advisory programs are offered through LPL Financial, a registered investment advisor. See relevant program disclosure documents for additional information. EIA and Stephen Eldridge & company are separate entities from LPL.

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